Natural Gas - Cold Blast Is Coming, Go Long Now

Jan. 13, 2020 6:00 PM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL, GAZ174 Comments29 Likes

Summary

  • In winter gas trading, the algos pay more attention to heating demand changes while the physical gas traders pay more attention to the trend change in the weather models.
  • And in the latest update in particular, ECMWF-EPS gained ~10 TDDs over the last 24 hours only to see natural gas prices sell-off.
  • We have a confluence of factors that are making us extremely bullish on natural gas prices in the near term today.
  • We just went long another 50% in UGAZ making our position sizing in this trade 200%.
  • The cold blast is coming as the 15-day outlook and ECMWF-EPS long-range showed bullish weather to continue into the first week of Feb.
  • This idea was discussed in more depth with members of my private investing community, HFI Research Natural Gas. Get started today »

Welcome to the cold blast edition of Natural Gas Daily!

In winter gas trading, the algos pay more attention to heating demand changes while the physical gas traders pay more attention to the trend change in the weather models.

And in the latest update in particular, ECMWF-EPS gained ~10 TDDs over the last 24 hours only to see natural gas prices sell-off. We have a confluence of factors that are making us extremely bullish on natural gas prices in the near term today.

  1. Record short positioning from money managers via CFTC positions.
  2. Cold blast forecast with high signal (Alaska ridge) favoring the set-up.
  3. Near-term technical breakout with successful retest today and TSI crossing up.

All of these favors our long-biased positioning views right now and why we just went long another 50% in UGAZ making our position sizing in this trade 200%.

Source: HFIR NG Trading Portfolio

Now, this wouldn't be possible given our regular margin requirements, so we had to divert the $50k we had allocated to oil trading into this trade in order to make it work, but because we are using so much leverage, we need this trade to work right from the start, so our stop-loss is very short on this trade. (Subscribers get access to all of our stop-loss levels.)

We tiered the stop-losses based on our conviction. Given the last two entries are on margin, we have to use a tighter stop-loss to control losses.

Now turning over to the weather front, we see a very bullish set-up coming.

Source: WeatherModel.com

The 15-day outlook displays all of the classic colder than normal patterns we look for. Alaska ridge is in place with the broader East coast remaining colder than normal. The long-range then verified today that the TDD outlook will remain above normal until the first week of February before tapering off.

So for us, the signal is really simple. So long as the Alaska ridge stays in place and no Southeast ridge is in sight, we believe heating demand will likely stay higher than normal. This would then in turn start to push natural gas prices higher. We see a near-term upside of $2.4 with more upside to follow. If the first week of February does indeed turn bullish, then we see prices grinding back to $2.6.

On the technical front, we also really like the set-up. TSI has crossed. Prices retested the previous resistance area successfully with a hammer candle forming. These are classic bottoming signals.

Over the next few days, we will be watching the models closely than ever. Alaska ridge is what we will continuously pay attention to, so if this signal remains strong, we will continue to hold a high conviction on this trade.

We will be watching weather models closely, so if you are trading natural gas and need guidance on weather, fundamentals, and trader positioning, we think you should sign-up for HFI Research Natural Gas. Sign-up here now.

This article was written by

HFIR Energy profile picture
8.13K Followers
The #1 natural gas research service on Seeking Alpha.

The #1 natural gas research service on Seeking Alpha.


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HFIR Natural Gas prides itself in offering variant perception investment research in macro natural gas analysis.

Due to high demand for HFI Research's natural gas premium only offering, we have decided to launch a cheaper premium service, HFI Research Natural Gas, for natural gas followers.

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HFI Natural Gas Premium will offer the current exclusive natural gas content HFI Research subscribers currently receive, they include:

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- Storage Projection Updates

- "What Are The Traders Saying?"

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HFI Research Natural Gas will not include the other benefits HFI Research subscribers currently receive, and for those interested in our full offering, you should visit our main page for information:

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Disclosure: I am/we are long UGAZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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